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Forex Flash: Eurozone credit crunch may worsen - Nomura

FXstreet.com (Barcelona) - Nomura research Institute Chief Economist Richard Koo believes that the Eurozone credit crunch may worsen.

He notes that Eurozone officials are now voicing two contradictory views. One says that the approach used in Cyprus was specific to that country and will not set a precedent. The other says that “bail-ins” will become a mainstream policy response. He believes that unless it is quickly made clear in an official capacity that the authorities’ response to future financial crises will follow the ESM approach and not the Dijsselbloem approach, the turmoil among large depositors will continue. He writes, “That, in turn, would force banks to become more conservative, since they cannot lend if there is a risk of large depositors taking their money elsewhere. That suggests the Eurozone’s ongoing credit crunch may worsen, aggravating an already severe recession.”

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